The relationship between lawyers and their clients is the lifeblood of a law firm. But law firms are notoriously bad at planning for their senior lawyers’ retirement.
This lack of planning can endanger the firm’s relationship with its major clients, disrupt the firm’s management, and create a financial crisis.
Succession planning should start years before a partner turns 65. It should be part of the way the firm thinks about how it retains, promotes and involves its junior lawyers. Exit plans should be built into the agreements the partners have among themselves, so that one partner’s retirement doesn’t cause chaos for the rest of the firm.
Law firms tend to resist succession planning for several reasons.
- Senior lawyers may be reluctant to “share” their clients with other lawyers in the firm
- Clients may be uncomfortable with having others do their legal work.
- The compensation system doesn’t reward the transition of clients from senior to junior lawyers
- The system does not give junior lawyers a clear path to increased client responsibility, causing them to leave
- Lack of a suitable successor
- Other lawyers don’t understand the client’s business
Planning for Client Continuity
A succession plan recognizes that partners will eventually retire or die, and bolsters the client relationship by integrating junior lawyers into the client’s team.
A junior lawyer should be identified early as a senior partner’s successor, and given incentives to stay with the firm and a timeline for transitioning to full responsibility for the client. If your firm does not have junior lawyers who have the proper skillset or experience to serve as successors, you may need to recruit outside lawyers to join the firm.
Senior partners should encourage this transition by giving the junior lawyer increased responsibility, inviting the junior lawyer to important client meetings and displaying confidence in the younger attorney’s experience and judgment. At some point, the junior lawyer can take over as the partner in charge, with the senior attorney serving in a more advisory role until he or she fully retires from the firm.
Planning to Continue the Firm Business
In addition to succession planning that retains key clients, firms must plan for transitioning the firm’s leadership and for buyouts of retiring partners. Failing to plan for these events can lead to dissention among lawyers and an inability to competently manage the firm’s business.
Firms should have a partnership agreement, buy-sell agreement or other agreement among the partners that explains how a partner’s departure will be handled and how the partner will be compensated for his or her interest in the business. The firm should also be the beneficiary of life insurance policies that will allow it to buy out the interests of a partner’s descendants if the partner dies.
Other succession issues a firm should consider include a mandatory retirement age, a mandatory age at which a lawyer should identify a successor and begin to wind down his or her business, and funding a retirement plan.
By establishing and following a strategy, your law firm will be better prepared to survive for the long term, extending the legacy that you and your partners have worked so hard to create.